90.
There has been much talk of a tough budget. The
temptation to raise taxes in the given situation was
indeed great. But I recognise that direct tax policy must
impart stability and confidence both to individuals and
corporates. Therefore, any uncertainty in this regard
must be ended. Tax rates introduced last year are
moderate enough. I do not propose to introduce any
changes in the rate structure either for individual or
corporate taxes. I do hope that long-term stability in
tax structure would create virtuous circles of increased
productivity, voluntary compliance and enhance our tax
widening efforts. In fact, I am going to announce a
couple of concessions. Considering the difficulties
experienced by the tax payers at the marginal level, the
level for tax exemption is being raised from the existing
limit of Rs.40,000 to Rs.50,000.

91.
Salary earners having income upto Rs.1 lakh will be
further pleased to know that I propose to raise the
ceiling of standard deduction in their case from
Rs.20,000 to Rs.25,000. Their pleasure, I hope, will be
happily shared by those salary earners whose income is
more than Rs.5 lakhs. They will henceforth not be
entitled to this deduction. For salary earners having
income between Rs.1 lakh and Rs.5 lakhs, no change is
proposed in the existing position. I also propose to
enhance the ceiling of tax-free reimbursement of medical
expenses from Rs.10,000 to Rs.15,000.

92. In
a country of our size, it is a matter of great anxiety
that the total number of assessees constitutes less than
1.25% of our population. The scope for tax widening
remains the single most formidable challenge in the area
of direct taxes. It is well accepted tenet of taxation
policy that moderate rates of taxes only make sense if
the net is wide and the scope of evasion progressively
minimised. Towards this objective, I propose to take some
important initiatives. Last year, a scheme was introduced
to cover 12 important cities where if you fulfil two of
the four criteria, namely, possession of a house,
subscription to a telephone, spending on foreign travel
and possession of a motor vehicle, you would be obliged
to file an income-tax return. This scheme had several
lacunae which I propose to remove. In the first instance,
the scheme is being extended now to cover 23 more cities
in India taking the total coverage to 35 cities. The net
itself is being enlarged to include two additional
criteria, namely, holding a credit card and membership of
expensive clubs, taking the total parameters to six.
Finally, the matching of two out of four parameters apart
from being an administratively onerous task provided an
escape route to many potential assessees. I believe that
if any one fulfils one of the six criteria, it would be
reasonable to ask the individual to file his income-tax
return. It could thereafter be determined whether he is
liable for payment of taxes or not. This revised
"One-by-Six", as the scheme would now be known,
is a significant initiative in our tax widening efforts
and it is my intention to raise the total number of
individuals filing their income-tax returns by at least
50 percent during a full fiscal year.

93.
Coupled with tax widening, tax evasion continues to be a
serious handicap. While efforts at enforcement would be
strengthened, I propose to undertake a new initiative in
making it obligatory for assessees to quote their PAN or
GIR number mandatorily in respect of certain high value
transactions. These transactions would be :-

Purchase & Sale of
immovable property

Purchase & Sale of motor
vehicles

Transaction in shares exceeding
Rs.50,000

Opening of new bank accounts

Fixed deposits of more than
Rs.50,000

Applications for allotment of
telephone connection

Payment to hotels exceeding
Rs.25,000/-.

With
increased usage of computerisation, this data will be
fully utilised for increasing the tax-base and for
preventing the leakage of revenue.

94. We
must recognise that the cumbersome nature of our income
tax forms coupled with complex procedures is a serious
deterrent to an honest individual in becoming an
assessee. I, therefore, propose to introduce, for the
first time, a simple one page taxpayer-friendly return
form to be hereinafter called, SARAL,
applicable to all non-corporate taxpayers. SARAL can be
filled up easily without the aid of Chartered Accountants
or Tax Advisors. The SARAL, I hope, would
become popular enough, through voluntary compliance and
the assistance of NGOs, which I propose to muster, along
with mobile vans for important cities, can be widely
distributed and collected easily on spot. This will,
apart from contributing to our tax widening effort, also
make an important psychological difference in the mindset
of potential tax assessees.

95.
Litigation has been the bane of both direct and indirect
taxes. A lot of energy of the Revenue Department is being
frittered in pursuing large number of litigations pending
at different levels for long periods of time.
Considerable revenue also gets locked up in such
disputes. Declogging the system will not only incentivise
honest taxpayers, enable government to realise its
reasonable dues much earlier but coupled with
administrative measures, would also make the system more
user-friendly. I, therefore, propose to introduce a new
scheme called "SAMADHAN". The scheme would
apply to both direct taxes and indirect taxes and offer
waiver of interest, penalty and immunity from prosecution
on payment of arrears of direct tax at the current rates.
In respect of indirect tax, where in recent years the
adjustment of rates has been very sharp, an abatement of
50 per cent of the duty would be available alongwith
waiver of interest, penalty and immunity from
prosecution.

96.
Legal measures are also being proposed to limit and
expedite litigation. These include enhanced scale of fees
for filing appeals before the Appellate Commissioner and
the Income Tax Appellate Tribunal, abolition of the level
of Deputy Commissioner (Appeals), provision of direct
appeals to High Courts to reduce delay, and also
extension of the scope of the Authority for Advance
Ruling to notified categories of resident tax payers.

97.
Moderate rates and large concessions do not go hand in
hand. I have, therefore, carried out a review of the
various concessions and exemptions under the Income-tax
Act. I find that many of them are no longer necessary and
some of them are also being used for tax avoidance. I,
therefore, propose to withdraw many of these provisions.
These include exemption to the Export Import Bank of
India and exemption in respect of certain perquisites of
foreigners employed in India. The blanket exemption in
respect of educational and medical institutions which is
being misused, is proposed to be withdrawn, compelling
such institutions to come under a discipline. However,
safeguards are being provided to ensure that the
institutions genuinely serving the social cause in either
field do not lose the existing benefits.

98. I
also propose to plug certain loopholes. Rule 5(a) of the
First Schedule to the Income-tax Act relating to
computation of profit of insurance business other than
life insurance business is being amended to prevent
leakage of revenue. Similarly, section 10(23G) of that
Act is being recast to serve the objective of
infrastructure financing without misuse of the
concession. Under the existing provisions, there is no
mechanism to ensure that the tax free funds raised by an
infrastructure enterprise are actually used for
infrastructure development within a reasonable time and
are not used for any other purpose. I propose to provide
such a mechanism.

99.
Gift-tax has been levied in India since 1958. The revenue
yield from this tax has been insignificant. Last year we
collected barely Rs.9 crore. The Gift-tax Act has also
not been successful as an instrument to curb tax evasion
and avoidance. I, therefore, propose to discontinue the
levy of gift- tax on gifts made after 30th September,
1998. At the same time, to ensure that there are no
leakages of income-tax revenue through the mechanism of
gifts, I propose to tax the gifts under the Income-tax
Act itself in the hands of the recipients. However, the
gifts from non-residents including NRIs through banking
channels will continue to enjoy exemption as at present.

100. I
have already said that housing is an area which requires
our utmost attention. Therefore, I propose several
incentives to encourage house-building activity. These
include :-

Tax holiday for approved
housing projects - 100 per cent deduction from profits
for first five years and 30 per cent deduction for
subsequent five years.

Increased deductions against
income from house property - deduction for repairs and
collection charges increased from 1/5th to 1/4th and
deduction for interest on borrowed capital in case of
self-occupied property increased from Rs.15,000 to
Rs.30,000.

Carry-forward of losses from
house property against future income under the same head
to be allowed for 8 years.

Deduction equal to 50 per cent
of the profits to companies engaged in housing projects
aided by the World Bank.

Section 80GG in respect of
deduction for rents paid is being reintroduced.

Exemptions to certain specified
properties like commercial complexes under the Wealth-tax
Act.

101.
Other areas in the social sector for which new tax
incentives are proposed or the existing ones being
increased include employment generation, improvement of
environment, upliftment of women, road safety,
cooperatives and medical expenses of the handicapped.

102. I
propose to allow a new deduction to companies with a view
to encourage them to employ additional work force. An
amount equal to 30 per cent of additional wages paid to
the new workmen will be allowed as a deduction against
profits, subject to certain conditions.

103.
For improvement of environment, I propose to allow 100
percent deduction, subject to a ceiling of Rs.5 lakhs, to
undertakings engaged in the collection or processing of
biodegradable waste. I also propose to make activities
which encourage the production of bacteria induced
fertilisers eligible for 100 per cent deduction under
section 35AC of the Income-tax Act. Necessary amendment
in the rules will be notified for this purpose. Similar
benefit is proposed to be extended to the activities of
establishing and running of educational institutions,
hospitals and medical facilities in rural areas
exclusively for women and children and also creches and
schools for the children of workers employed in factories
or at project sites. I also propose similar amendment of
rules to make activities which promote road safety and
traffic awareness and prevent accidents eligible for 100
per cent deduction under section 35AC.

104.
The promotion of sports and games in the country needs to
be encouraged. I propose setting up of National Sports
Fund and further propose that donations made to the Fund
will be eligible for 100 per cent deduction.

105. I
propose to extend 100% tax holiday granted to industrial
undertakings located in any industrially backward State
or district till the year 2000. I also propose similar
extension of tax holiday to power sector upto the year
2003 and also to new refineries set up after 1st October,
1998. I also propose to extend infrastructure status to
inland waterways and inland ports.

106. I
further propose tax holiday benefits to radio paging
services and services provided by satellite owners for
telecommunication.

107. I
also propose several measures in response to demands from
business and industry. Certain categories of business
reorganisations are proposed to be freed from any
additional tax liability or loss of tax benefits keeping
in view the necessity of such reorganisation consequent
on economic liberalisation. No capital gain would be
charged and the benefit of carry-forward of losses and
unabsorbed depreciation would be allowed in case of
specified reorganisations. Intangible assets are proposed
to be allowed depreciation at the rate of 25 per cent.
Provisions for amortisation of preliminary expenses are
proposed to be liberalised. The period of amortisation is
proposed to be reduced from 10 years to 5 years and the
rate of deduction will consequently be doubled. Stock
lending is proposed to be exempted from capital gains.

108.
Delay in refund of excess tax collected tantamounts to
denial of justice. It is a source of constant harassment,
particularly of small tax payers. I intend to mitigate
this difficulty by effecting an amendment in section 192
of the Income-tax Act which will enable adjustment of
loss from house property against salary income, at the
source itself. This, I believe, will eliminate a large
number of refund claims.

109. In
response to demands from tax payers, I propose to take
further measures. Under the existing provisions of
section 44AA of the Income-tax Act, every person carrying
on business or profession is required to maintain account
books, if his income from business exceeds Rs.40,000 or
his total turnover exceeds Rs.5 lakhs. Considering the
increased cost of engaging accountants, I propose to
enhance these limits to Rs.1,20,000 and Rs.10 lakhs
respectively. I further propose that the penalty leviable
at the minimum rate of Rs.100 per day for failure to
furnish certificates of tax deduction or collection at
source under section 203 or to deliver copies of
declarations under section 197A, shall not exceed the
amount of tax deductible or collectible, as the case may
be. Presently, there is no such ceiling on the quantum of
penalty leviable which causes hardship, particularly to
small businessmen.

110.
Certain demands of the film industry have also engaged my
attention and I propose to give relief to them. Under the
existing rules, if a film is released on commercial basis
at least 180 days before the end of the previous year,
full amortisation of the cost incurred on production or
acquisition of distribution rights of the film is allowed
in the year of release itself whereas if the film is
released later, full amortisation is not allowed in that
year. Considering that nowadays film producers and
distributors release a large number of prints
simultaneously to counter the threat of video-pirates and
cable television, resulting in shorter life span for
exploitation of films, I propose to reduce the aforesaid
period of 180 days to 90 days. This will enable the film
industry to quickly recoup the cost of film production
and distribution. I also propose that producers of films,
who are required to furnish information in respect of all
payments over Rs.5,000 to the Income-tax Department in
any financial year would have to do so now only in
respect of payments over Rs.25,000. I hope these measures
would inspire the film industry to make better and
healthier films.

111. A
controversy has arisen recently regarding the
deductibility of payments by way of extortion money. To
set the controversy at rest, I propose to explicitly
provide retrospectively since the inception of Income-tax
Act, 1961 that any money paid by way of extortion will
not qualify for deduction as a business expense. As
further rationalisation measure, I propose to make
certain amendments with regard to block assessment
procedure and treatment of MODVAT credit in the valuation
of inventories and capital assets.

112.
The limit of room rent in hotels for the purpose of
attracting expenditure tax is proposed to be increased
from Rs.1200 to Rs.2000 per day.

113.
Taxpayers all over the world have a sense of pride in
discharging their legitimate dues to the government and
the society recognises the important contribution they
are making in enabling the State to discharge its
responsibilities. In this country, regrettably, the
culture of pride by honest taxpayer and a social
recognition of his important role has yet to evolve. We
must make a change in this mindset. Towards this
objective, I propose to introduce a scheme called
"SAMMAN" to demonstrate the societys
recognition of their important contribution to the
national cause. The details of the facilities and
recognition to be conferred on the taxpayers and PAN
holders would be separately announced.

114. I
hope the above measures alongwith SARAL, SAMMAN and
SAMADHAN will go a long way in making our efforts to
increase the tax payers compliance a success. But while
we are doing what we can, I call upon the people of India
to do their patriotic duty by the country and honestly
pay their taxes.

115.
Before I move on to indirect tax, I would like to state
that a large number of suggestions were received from all
sections of tax payers and I have got them carefully
examined. It is not practicable to acknowledge all these
communications individually. I do so now collectively and
am extremely thankful to the tax payers for their
valuable suggestions.

116.
Honble Members would see from the budget documents
that the figure projected by way of revenue realisation
from direct taxes is Rs.48,855 crore which is higher than
the figure indicated in the interim budget. This is after
taking into account the revenue loss of Rs.950 crore,
worked out on a mechanical basis, arising out of certain
proposals for reliefs and concessions placed before the
House. We intend to make this loss up and collect the
budgeted amount through improved collection of arrears,
continuation of the tax base enlargement efforts,
rigorous enforcement and tightening measures reflected in
the budget proposals.